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Why Don't Asians Invest in Asia? The Determinants of Cross-Border Portfolio Holdings

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Author Info

  • Alicia García-Herrero

    (Banco Bilbao Vizcaya Argentina (BBVA), 43/F, Two International Finance Centre, Hong Kong, SAR.)

  • Philip Wooldridge

    (Bank for International Settlements, Representative Office for Asia and the Pacific, 78/F, IFC Two, 8 Finance Street, Hong Kong, SAR.)

  • Doo Yong Yang

    (Asian Development Bank Institute, Kasumigaseki BL 8F, 3-2-5 Kasumigaseki, Chiyoda-ku, Tokyo, Japan.)

Abstract

This paper seeks to understand why Asian foreign investment is concentrated in financial markets outside of the region instead of in Asian markets. We analyze empirically the geographical composition of the cross-border portfolio holdings of more than 40 source countries. We compare these benchmark results with those of four subgroups: advanced industrial economies, emerging market economies, European economies, and Asia-Pacific economies. The lack of liquidity in Asian financial markets turns out to be one reason why Asian capital is invested predominantly outside the region, notwithstanding the short distances and large trade flows between Asian economies. Initiatives to improve the liquidity of Asian financial markets, therefore, may be a useful way to stimulate financial integration within the region. (c) 2009 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Asian Economic Papers.

Volume (Year): 8 (2009)
Issue (Month): 3 (October)
Pages: 228-246

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Handle: RePEc:tpr:asiaec:v:8:y:2009:i:3:p:228-246

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Web page: http://mitpress.mit.edu/journals/

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Cited by:
  1. Okawa, Yohei & van Wincoop, Eric, 2012. "Gravity in International Finance," Journal of International Economics, Elsevier, vol. 87(2), pages 205-215.
  2. Azis, Iwan J., 2013. "Inadequate Regional Financial Safety Nets Reflect Complacency," ADBI Working Papers 411, Asian Development Bank Institute.
  3. Vahagn Galstyan & Philip Lane, 2010. "The Dynamics of Portfolio Holdings in Emerging Europe," The Institute for International Integration Studies Discussion Paper Series iiisdp346, IIIS.
  4. Olaf Unteroberdoerster & Runchana Pongsaparn, 2011. "Financial Integration and Rebalancing in Asia," IMF Working Papers 11/243, International Monetary Fund.

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